Henry Fishkind, of the consulting firm Fishkind & Associates said Tuesday that “2008 is the consolidation year.  2009 and 2010 will be better. I believe we can see the bottom,” referring to the bottom of the current economic cycle.

Home sales, starts and prices have dropped in the region since late 2006, according to industry data. There are now fewer housing starts than sales, Fishkind said. “That’s the first indication of the bottom of the cycle.”

Fishkind expects the national economy to improve later this year after taxpayers start spending Treasury-issued checks. Fishkind said while the tax rebate checks will spur a recovery, he warned that prices would go up.

“There will be some inflation next year,” he warned. As a result, the Federal Reserve will be forced to raise interest rates to squeeze inflation out of the economy.

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A rising mortgage rate could nullify future price drops

The Florida Association of Realtors reports that too many buyers are focusing on Vero Beach home prices and waiting to jump into the market, afraid that a property bought today will be worth less tomorrow. But rising mortgage rates should also be a concern, and many potential buyers could find themselves out of luck if they wait much longer.

Jim Svinth, chief economist at mortgage firm Lending Tree, tells buyers to “ignore the headlines.” As the economy recovers, finance costs will rise. Waiting for the perfect time to get into the market may cost prospects, especially renters, more in the long run.

“The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher,” says Svinth. Any savings you might incur by a further drop in prices might be offset by rising financing costs.

Let’s take a home priced at $250,000. With a 20 percent downpayment and 30-year fixed-rate mortgage at 6 percent, monthly payments would be $1,199.10 (principal and interest only).

If the price of this home were to drop 10 percent one year from now to $225,000 – but mortgage rates rise to 7 percent – the monthly payment for a 30-year fixed-rate mortgage with 20 percent down would be $1,197.54 (mortgage and interest only) — a difference of $1.56 a month.

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Six of the nation’s largest mortgage lenders bowed to government pressure and joined forces to give all homeowners who are seriously delinquent on their loans another chance. The lenders have agreed to freeze foreclosures for a month to give borrowers and lenders time to work out a repayment plan.

Named Project Lifeline, the initiative is a step-by-step approach for homeowners who are 90 days or more behind in their mortgage payments, a circumstance that already puts them in serious risk of losing their homes. These borrowers — many of whom have not contacted their lender — could begin receiving letters from them as soon as this week.

“Project Lifeline is aimed at homeowners who face a real risk of losing their home but have not yet addressed the problem,” Secretary Henry Paulson said. “For whatever reasons they have not yet taken action. Our hope is that today’s announcement will reach them and they will reach out immediately for help, especially now that the foreclosure process is upon them.”

“These efforts are to help American families who both want to and can, through a loan modification or refinancing, stay in their homes,” he added.

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Market Expected to Recover from Indigestion

A new report released today by Attorneys’ Title Insurance Fund Inc. (The Fund) and posted on www.MyRealEstateStory.com finds that Florida’s housing market slowed in 2007 in nearly every county analyzed. The report also shows that real estate markets flattened out in spring 2007, before the subprime mortgage crisis in August knocked markets down another 10 percent across the state. Since then the housing market has flattened and is expected to begin to recover during the next several years.

The 2008 Fund Real Estate Forecast, commissioned by Florida-based Attorneys’ Title Insurance Fund’s Consumer Education Campaign, was created by economist Hank Fishkind, Ph.D. of Fishkind & Associates, Inc., using The Fund’s extensive online system of deed data for more than 30 Florida counties. The report provides a snapshot of the national economic outlook and 33 county-specific forecasts for 2008 through 2010, as well as a section detailing how actual 2007 data compared to projections that were made in last year’s Fund 2007 Real Estate Forecast report.

“Florida is one of the leading states for job creation and outperformed the rest of the country despite the housing market meltdown,” stated Fishkind. “The state’s population growth also slowed, but is still nearly greater than all of the other Southeastern states put together. Florida has a very large and powerful economy that has gone through a cyclical downshift, but it is still outperforming compared to the rest of the nation.”

The Fund’s 2008 Real Estate Forecast shows that Orlando continues to be the strongest residential real estate market in the state because of its large share of fast-growing industries, such as tourism, healthcare, education and defense manufacturing. Not all markets in Florida mirror Orlando’s resiliency, however. Miami-Dade is currently going through the worst condominium bust cycle that Florida has seen since 1975. Additionally, significant excess supply of single-family homes in the Fort Myers and Cape Coral markets will not begin to be absorbed until 2010.

“With Florida’s real estate market, it is important to maintain some perspective as recent reductions in home prices come after a very lofty and unsustainable peak, and prices are still up considerably compared to 30 years ago,” explained Fishkind. “Florida has created a tremendous amount of wealth and – despite many of the problems that loose lending practices and subprime mortgages have caused – the state now has the highest level of homeownership ever. The market has some indigestion now, but housing markets will return to normal during the next few years; the damage for some is significant, but in the aggregate, Florida still had some significant economic gains.”

Jeremy Siegel, a professor of finance at Wharton and author of The Future for Investors, was recently asked to analyze the Fed’s decision to cut short-term interest rates by a quarter percent or 25 basis points. The Fed cut its main short-term rate target to 4.25% and the “discount rate” charged on direct Fed loans to commercial banks to 4.75%.and its impact on the markets.

Siegel says “ If I were there, I would have tried to have gotten 50, but I’m not at all surprised at 25. What surprised me a bit was the retention of the balanced directive. And what that means is that the Fed still sees inflation as a potential problem and did not wish to elevate the slowing economy to a primary position in its policy making. That was a surprise.”

“Many felt that with GDP growth slowing down this quarter virtually to zero, that the Fed would have put more emphasis on the slowing growth. So, the stock market’s reaction, which is a great disappointment, is not surprising. There is a feeling now that the Fed may be what we term ‘behind the curve,’ which means they are not being preemptive in trying to prevent a recession or a slow down, but they are only being reactive — and being reactive might be too slow.”

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South Florida won’t get a big boost from President Bush’s plan to freeze interest rates for homeowners nationwide who are bracing for sharp increases in their adjustable-rate mortgages, analysts say.

What’s more, Bush’s proposal is focused on preventing a national foreclosure crisis and not meant to aid individual states, such as Florida and California, that are leading the housing bust after the boom of 2000-2005.

Some economists say there’s nothing in the president’s proposal that will trigger a rebound in a South Florida housing market that has been mired in a slump for almost two years.

“It’s not going to help areas that need help the most, and Florida certainly is one of those,” said Per Gunnar Bergland, chief economist for Moody’s Economy.com, a Pennsylvania research firm.

Bush said relief is designed for homeowners holding adjustable-rate subprime mortgages they took out between Jan. 1, 2005, and July 31, 2007, and are facing a steep increase in their interest rates before July 31, 2010.

About 1.2 million people could be eligible for help, but only a fraction will get the five-year rate freeze. Others would get assistance in refinancing with their lenders and moving into loans secured by the Federal Housing Administration, Bush said.

Also, the aid will come only to those who ask for it, he said. Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and the president also urged people to call a new hotline: 1-888-995-HOPE.

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While credit standards have clenched up, driving many too-lax lenders from the field, plenty of financiers are looking for customers in areas like Vero Beach, Florida, say home lenders.

“It’s a very good time for first-time buyers,” said Susan Wommack, national account manager with LoanSifter.com, an industry database business in Little Chute, Wis. “The lenders who are still standing are very competitive, and service levels have gone up, too.”

“For people with good credit, who’ve shown some responsibility, and have some income to work with, there’s plenty of money,” said Kevin Kubacki, senior loan officer with Pyramax bank in Greenfield, Wis.

Because a reliable history of meeting mortgage payments weighs heavily in calculating credit scores, first-time buyers are at a bit of a disadvantage, he added, typically landing between 620 and 680.

That limits the types of mortgages that borrowers can get more than the interest rates they’ll pay. For instance, a first-time buyer hoping to snag a relatively rare no-down-payment loan these days hasn’t a prayer with a credit score of less than 680.

Kubacki and other lenders say that first-timers are finding good luck with government programs specifically geared for them, such as those offered by the Federal Housing Administration.

Restrictions are geared to include as many first-time buyers as possible, because that’s the whole point of such programs, lenders say.

Coming up with the downpayment can be hard.

“The 100 percent financing programs have been popular, but people are rightfully wary of those, so we are returning to a 3 percent or 5 percent downpayment,” said Joni VonAsten, underwriting processor and closing supervisor for Wisconsin Mortgage Corp. in Brookfield, Wis. “We’re going back to the standards that have always been in place.”

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